By Zhang Peng and Zhang Yaxiong
The economies of China and the United States have become increasingly interdependent as economic globalization and worldwide industrial restructuring deepens.
Since the end of the Cold War in the 1990s, Sino-US economic exchanges have kept growing in spite of frequent friction between the two countries.
From 1990 to 1999, the United States recorded an average gross domestic product (GDP) growth of 3.3 percent while the Chinese GDP quadrupled. Rapid growth brought about an increase of consumption and investment, facilitating bilateral economic exchanges.
According to statistics from Chinese customs, the amount of Sino-US trade increased from US$11.77 billion in 1990 to US$74.47 billion in 2000, up 20 percent annually.
The fact that Sino-US trade has grown faster than both countries' GDP indicates that bilateral trade has influenced economic restructuring in the two countries.
Meanwhile, the multiplying effect of trade growth has strongly supported both country's GDP growth.
Yet the US trade deficit with China has become a key problem between the two countries in recent years.
Statistics from the US side show that in 2000 China took the place of Japan as the country with which the United States suffered its largest bilateral trade deficit, worth US$83.83 billion. And while the US trade deficit with Japan declined in 2001, the figure with China continued to swell.
The trade deficit between the two countries is closely related to their different economic structures.
Labor-intensive products like textiles, clothing, shoes, toys and household appliances are the major exports from China to the United States.
One key reason for China's competitiveness with these products is that China has become a huge labor-intensive production base and one of the largest suppliers of cheap labor in the world.
It is in the interest of the United States to import these products from China as they are cheaper. A 1997 World Bank report pointed out that domestic consumers would pay another US$15 billion if the United States imported these products from other countries.
At present, the growth of US exports to China is mostly hindered by political factors and export controls against China. Such limits on exports not only cost US exporters billions of dollars every year but also impede sound development of bilateral trade.
China's entry into the World Trade Organization (WTO) in 2001 will help promote bilateral trade. According to Goldman Sachs' estimations, China's WTO membership will bring additional US exports worth US$13 billion by 2005.
With regards to investment, the United States had become the leading foreign investor in China by investing in 31,218 projects, with a total contracted volume of US$60.3 billion and an actual investment of US$30 billion by the end of 2000.
Multinationals from the United States constituted the main body of US investors in China.
The huge potential of the Chinese market is one important attraction to US multinationals.
Take Kodak for example. While the film giant announced a worldwide job cut of 4 percent due to global economic recession in March, 2001, it opened on average three express chain stores in China every day.
China's rapid economic growth and the expanding purchasing power of residents had created plenty of opportunities for foreign companies.
Another reason for the increase in US multinationals' investment in China is cheap labor and abundant natural resources. The shift of some US manufacturing bases to China will not affect the US economy since its service sector is playing a more and more important role.
In the field of science and technology, the exchange is essentially one-way -- US exports to China. As a developing country, China depends heavily on US technology.
The advanced technology US investors introduce not only facilitates China's technological progress but also boosts competition to push the reform of Chinese enterprises.
But normal technology transfers between the two countries are still subject to the US Government's interference.
Some US companies have set up research centers in China to tap the advantages in some science and technology fields through co-operation.
Sustained development of Sino-US economic exchanges has served as a significant prop to bilateral relations.
Deepening economic interdependence has laid the foundation for more shared interests and cooperation between the two countries.
In the new international division of labor, both China and the United States could bring their respective comparative advantages in low-end and high-end markets into full play by promoting the trade of goods and services.
However, while boosting China's economic growth, deepening economic interdependence can also exert some negative influence on the Chinese economy. Heavy reliance on exports will expose the country to unfair treatment in trade.
Therefore, the Chinese Government should urge domestic enterprises to diversify export markets while encouraging more imports and investment from the United States. And bilateral and multilateral approaches should be widely adopted to settle trade disputes.
In addition, though China is labeled as the "world's workshop" by some people, US multinationals still take China as mainly a "processing workshop," placing it at a low position in the global production system. In view of this situation, China should step up efforts to attract more US investment in high-tech industries and its western areas to optimize industrial structure and narrow the regional development gap.
(The authors are economists with the State Information Centre)
(China Daily May 25, 2002)
